|Appellate Division||Appellate Division of the Regional Court in Brno|
|Arbitration Act||Act No. 216/1994 Coll, on Arbitral Proceedings and Execution of Arbitral Awards (Czech Republic)|
|Bankruptcy Act||Act No. 328/1991 Sb. Coll, on Bankruptcy and Composition (Czech Republic)|
|BIT or Treaty||Agreement between the Government of Canada and the Government of the Czech and Slovak Federal Republic for the Promotion and Protection of Investments|
|CC||Creditor's Committee for Moravan a.s. bankruptcy|
|CKA||Czech Consolidation Agency|
|Code of Civil Procedure||Code of Civil Procedure, Act No. 99/1963 Coll.,|
|Commercial Code||Czech Commercial Code, Act No. 513/1991 Coll.|
|Commercial Register||Commercial Register of the Regional Court in Brno|
|Court Fees Act||Act No. 549/1991 Sb. Coll., on Court Fees|
|CSOB||C eskoslovenská obchodníbanka, a.s.|
|Draft Cooperation Agreement||Draft agreement prepared by Mr. Jaroslav Sup allegedly for execution by Claimant and Orbes representing LEGES, bankruptcy trustee for Moravan|
|ECHR||European Convention on Human Rights and Fundamental Freedoms|
|EC Regulation||Council regulation (European Communities) No. 1346/2000 of 29 May 2000 on insolvency proceedings|
|Final Award||Final Award in the Stockholm Arbitration|
|FPS||Frontier Petroleum Services Ltd., also referred to as "Frontier", "Claimant", or "Investor"|
|ICCPR||International Covenant on Civil and Political Rights|
|Injunctions Claim||Claimant's application to the Regional Court in Brno for an interim injunction to prevent entry in the Commercial Register of the resolution to increase the basic capital adopted at the 13 September 2002 LZ General Meeting|
|Interim Award||Interim Award on Claimant's Motion for Interim Measures in the Stockholm Arbitration|
|ICJ||International Court of Justice|
|LZ||Letecké Závody, a.s.|
|LZ General Meeting||13 September 2002 LZ general meeting of shareholders|
|LET Assets||Former assets of LET, a.s.|
|Midland Facility||Proposed support and service facility for L-410 aircraft in Midland, Texas|
|MMT||MMT Plus s.r.o.|
|New York Convention||United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards|
|Order on Security||Paragraph 2 of the dispositif of the Final Award, which orders the bankruptcy trustees for MA and LZ to grant Claimant first secured charges against the LET Assets and all of the property of MA (in accordance with the terms of the USA)|
|PCA||Permanent Court of Arbitration|
|Promissory Note||Promissory Note annexed to the Unanimous Shareholder Agreement which allegedly secured the loan of CZK 203,000,000 from FPS to MA|
|Regional Court||Regional Court in Brno|
|Resolutions||Resolutions taken at the 13 September 2002 LZ General Meeting|
|Resolutions Claim||Claimant's application to the Regional Court in Brno for a declaration of invalidity of two resolutions adopted at the 13 September 2002 LZ General Meeting|
|Stockholm Arbitration||Private arbitration between FPS and MA and LZ in Stockholm|
|Stockholm Tribunal||Arbitral tribunal appointed to determine the Stockholm Arbitration|
|Tora Group Petition||Petition for the bankruptcy of MA filed by the Tora Group on 14 August 2001|
|Transfin||Transfin International s.r.o.|
|UCL||Civil aviation office of the Czech Republic (Ú r ad pro civilní letectví C eská Republika)|
|UNCITRAL Rules||UNCITRAL Arbitration Rules|
|US-Czech Republic BIT||Treaty Between the Czech Republic and the United States of America for the Reciprocal Encouragement and Protection of Investment|
|USA||Unanimous Shareholder Agreement entered into between FPS and MA effective on 31 July 2001|
|USD||United States Dollars|
|Vala Opinion||25 May 2005 legal opinion of Mgr. Vladan Vala, legal counsel of bankruptcy trustee of MA|
|VCLT||Vienna Convention on the Law of Treaties|
|WIMCO||West Indies Mercantile Corporation|
(All descriptions listed in the right-hand column apply to the relevant time periods addressed in this Award)
|Vladimir Bartl||Head of the Commercial and Economic Division of the Czech Embassy in Ottawa|
|Stanislav Benes||Commercial Counselor at Czech Embassy in Ottawa|
|Marie Benesová||Supreme State Prosecutor of the Czech Republic|
|Martin Boháček||Judge overseeing the bankruptcy proceedings of LZ, Regional Court in Brno|
|Karel Cermak||Minister of Justice of the Czech Republic|
|Lenka Chmelová||Prosecutor, Supreme Prosecutor's office|
|Zlatava Davidová||Trustee in bankruptcy for LET|
|Vojtech Filip||Vice-President of the Czech Republic Parliament|
|Miroslav Gregr||Previous Deputy Prime Minister and Minister of Industry and Trade of the Czech Republic|
|Zlata Groningerová||Director in Chief of the CKA (Czech Consolidation Agency) and Chair of the Creditor's Committee for Moravan|
|Petr Hajtmar||Trustee in bankruptcy for MA|
|Ludmila Hanzlikova||Judge overseeing the bankruptcy proceedings of MA, Regional Court in Brno|
|Thomas Heath||Consultant hired to assist management of LZ with negotiations with Rolls Royce and BAE Systems|
|Josef Jarabica||Senior Director of Ministry of Industry and Trade of the Czech Republic|
|Jerry Jelenik||Chairman of the Czech Business Association of Canada and Honorary Consul of the Czech Republic in Calgary|
|Donald Jewitt||President of FPS|
|Patrik Joachimczyk||Vice-President and director of MA and LZ|
|Luis Konski||Counsel for MA and LZ in Stockholm Arbitration (Becker & Poliakoff)|
|Petr Kovanič||Vice-Chairman of the Regional Court in Brno|
|Ronald Kovar||Prosecutor, High Prosecutor's Office (Olomouc)|
|Yvona Legierska||Deputy Finance Minister of the Czech Republic|
|Curtis Leonard||General Counsel and Land Manager for ICA Energy Inc., engaged in joint venture with LZ and FPS to create and operate an LET aircraft support and service facility in Midland, Texas|
|Milan Matusik||Vice-President and aviation consultant to FPS|
|Petr Olbort||Lawyer for MA who participated in the drafting of the USA|
|Brett Olsen||Counsel for FPS in Canada (Ogilvie LLP, Olsen Law Office)|
|Josef Orbes||Representative of LEGES v.o.s., trustee in bankruptcy for Moravan|
|Bronislava Orbesová||Representative of LEGES v.o.s., trustee in bankruptcy for Moravan|
|Jirí Parkmann||Consul General for the Czech Republic in Canada|
|Jirí Poroubek||Prime Minister of the Czech Republic|
|Petr Petrzilek||Representative of the Office of the Czech Government, Prime Minister's Expert Department|
|Jirí Rusnok||Minister of Industry and Trade of the Czech Republic|
|Vlasta Ruzickova||Notary who recorded the minutes of LZ General Meeting of 13 September 2002|
|Pavel Rychetsky||Vice-Secretary of the Czech Republic Government, Minister of Justice, and Chairperson of the Legislature|
|Adam Sanford||Former President of Omnivus International|
|Miroslav Sládek||Trustee in bankruptcy for LZ|
|Libor Soska||President and Chairman of the Board of Directors of MA and LZ|
|Václav Srba||Deputy Minister of Industry and Trade of the Czech Republic|
|Tomás Stefánek||Vice-President of LZ and director of MA and LZ|
|Jaroslav Sup||Agent for FPS in the Czech Republic (Transfin International)|
|Pavel Svaty||Representative of the Ministry of Finance of the Czech Republic|
|Jitka Tutterova||Counsel for FPS in the Czech Republic|
|Vladan Vala||Legal advisor to Petr Hajtmar|
|Pavel Vosalik||Ambassador of the Czech Republic in Ottawa|
On 16 July 1996, LET agreed with its creditors on a bankruptcy settlement. This settlement was guaranteed by Komerční banka, a then state-owned bank and large creditor of LET. LET emerged from its first bankruptcy partially financially restructured, with its debt reduced from more than CZK 5.4 billion to some CZK 2 billion.5
By letters dated 26 July 2002 and 8 August 2002, the Deputy Minister of Industry and Trade, Václav Srba ("Srba"), indicated to Claimant that while the Czech government was not a party to the dispute between Soska (as owner of Moravan) and C eskoslovenská obchodní banka, a.s. ("CSOB"), a transfer of receivables related to Moravan was currently in progress from CSOB to the [CKA] and, once that transfer was complete, the state "will have a possibility to enter into negotiations with [Soska] from its position as creditor".63 The CKA acquired the receivable against Moravan from CSOB in July 2002. Srba also informed Claimant that he had been entrusted by Rusnok to arrange for the direct negotiation of the transfer of the debt to the CKA and had charged the Senior Director of the Ministry Ing. Josef Jarabica ("Jarabica") to meet with Claimant.64
On 20 November 2002, JUDr. Jitka Tutterova ("Tutterova"), counsel for Claimant in the Czech Republic, filed a criminal complaint with the Supreme Public Prosecutor in Brno against Soska, and his fellow LZ board members, Messrs. Tomás Stefánek and Patrik Joachimczyk ("Stefánek" and "Joachimczyk").82
On 23 April 2003, JUDr. Petr Kovanič ("Kovanič"), Vice-Chairman of the Regional Court, in response to the 16 April 2003 request from the Ministry of Justice, reported on the steps that had been taken pursuant to Claimant's request, namely that a request had been sent to MA "to document to the court that [Soska, Joachimczyk, and Stefánek] fulfil the mandatory conditions for execution of their posts pursuant to Section 31(a) of the Commercial Code" within 30 days, which the Regional Court reported had not elapsed at that time. Kovanič noted that it took no action with respect to Claimant's request regarding LZ because it was satisfied by the minutes of the LZ General Meeting.101 Kovanič explained that the effects of the declaration of bankruptcy of Moravan on 21 August 2002 would not extend to "other entities not affected by the bankruptcy", that a resolution on the Moravan bankruptcy was not yet enforceable because an appeal to the declaration of bankruptcy had been filed, and that without an enforceable resolution, the termination of the posts described in Section 31(a) of the Commercial Code could not take place.102 Kovanič noted that Sup had visited the Regional Court on 1 April 2003 to make the same request in person and that the abovedescribed position of the court had been explained to him at that time.103
On 30 January 2004, the tribunal in the Stockholm Arbitration issued an Interim Award on Claimant's Motion for Interim Measures ("Interim Award") enjoining LZ and MA from improperly selling and disposing of the LET Assets acquired with Claimant's funds. The dispositif of the Interim Award provided:
IT IS HEREBY ORDERED AS FOLLOWS:
1. Subject only to the provisions of paragraph 2 of this Order and to transfers to sales entirely within the ordinary course and present scope of their business, [MA] and [LZ] are hereby enjoined from breaching the [USA] dated July 31, 2001, and the Promissory Note dated August 8, 2001, and in particular, [MA] and LZ are hereby enjoined from any further selling, trading, pledging, encumbering, or otherwise disposing of the LET ASSETS, as defined in paragraph 11, Exhibit "3" of the Affidavit of Milan Matusik, sworn October 27, 2003, whether in the possession or control of either [MA] or LZ; pending conclusion of the Final Hearing of this arbitration, or further leave of the Arbitral Tribunal.
2. Notwithstanding paragraph 1 hereof, [MA] is permitted at any time to transfer to LZ any or all of the LET ASSETS held by [MA].
3. LZ is hereby enjoined from making any distributions, declaring any dividends or issuing any further shares pending the conclusion of the hearing in this arbitration or further leave of the Arbitral Tribunal.
4. Counsel to [MA] and LZ shall continue to hold the certificates for 49% of the issued and outstanding shares of LZ of any and all kind whatsoever pending the Final Award on the Merits of the Arbitral Tribunal.
5. [MA] is directed so to exercise its control of LZ, which exists by reason of its share ownership and control of the management and the Board of Directors of LZ, to cause LZ to comply fully with the provisions of this Interim Award.
6. Should the Arbitral Tribunal determine in the Final Award on the Merits that the Claimant ought not to have been granted the Interim Relief provided for in this Interim Award, and that [MA] and LZ, or either of them, have suffered damages as a result thereof, IT IS HEREBY DIRECTED that the said shares of LZ described in paragraph 4 hereof, shall stand as security for any such damages to [MA] and LZ, or either of them, which this Tribunal may determine have been suffered and for which Claimant ought to provide compensation.
7. The relief hereby granted in respect to Claimant's motion is interim only, and:
(a) such interim relief shall be without prejudice to any final determination of any and all matters in dispute in this arbitration in the Final Award; and
(b) such interim relief shall remain in force and effect until either:
(i) the release of the Final Award on the Merits by the Arbitral Tribunal; or
(ii) further Order of this Tribunal on motion brought by any of the Parties hereto.
8. This Interim Arbitral Award replaces the Interim, Interim Procedural Order issued by the Arbitral Tribunal on 11 December 2003.118
The public prosecutor agrees with the police authority, stating that the matter in hand is exclusively of a commercial-law nature and that the criminal liability of the suspected persons cannot be deduced in connection with the conduct described in the verdict [...]. After assessing the above-mentioned circumstances, it can be stated that the [USA] does not impose an obligation on [MA] to transfer 49% of the shares in [LZ] to FPS free of charge. In a situation where [MA] in accordance with the [USA], undertook to repay the provided loan to FPS, including interest, such procedure would appear to be illogical and completely commercially disadvantageous for [MA].138
1. The Arbitral Tribunal hereby declares that Frontier is entitled to a first secured charge against the LET ASSETS and all of the property of [MA] of every nature and kind wheresoever located as of August 15, 2001 until such time as the loan in the amount of 204,170,000 Czech crowns together with interest in the amount of six percent (6%) per annum, payable and compounded monthly on the first day of each and every calendar month in each and every year from and including August 10, 2002 to and including the date upon which all of the principal amount and all interest accrued thereon have been repaid in full;
2. The Arbitral Tribunal hereby orders the trustee in bankruptcy of [MA] and the trustee in bankruptcy of LZ, respectively, immediately upon the delivery of this Final Award to grant to Frontier first secured charges against the LET ASSETS and all of the property of [MA] of every nature and kind wheresoever located all in accordance with the declaration in item 1, above;
3. The Arbitral Tribunal hereby orders that Frontier is entitled to an accounting for the LET ASSETS held, or alternatively, sold, traded, pledged, encumbered, or otherwise disposed of from August 15, 2001 including those sold, traded, pledged, encumbered or otherwise disposed of from January 30, 2004;
4. [MA] and LZ are hereby ordered jointly and severally to pay to Frontier interest on the amount of 204,170,000 Czech crowns payable monthly at the rate of six percent (6%) per annum, payable and compounded monthly on the first day of each and every calendar month in each and every year from and including August 10, 2002 to and including the date upon which all of the 204,170,000 Czech crowns and all interest accrued thereon have been re-paid in full;
5. The Arbitral Tribunal hereby declares that Frontier is entitled to 49% of the shares of LZ, against the consideration of USD 100, payment of which amount is to be made by way of set off against amounts otherwise owing to Frontier by [MA] and LZ under the Promissory Note;
6. The Arbitral Tribunal hereby directs Luis Konski, Esq. of the law firm of Becker & Poliakoff, P.A., 5201 Blue Lagoon Drive, Suite 100, Miami, Florida 33126, USA, in his capacity as trustee [("Konski")], to deliver unconditionally forthwith the share certificates for 49% of the shares of LZ to Frontier in care of its counsel, Burnet, Duckworth & Palmer LLP, Calgary; for which delivery [Konski] shall be reimbursed for reasonable out-of-pocket expenses;
7. [MA] and LZ are hereby ordered jointly and severally to pay to Frontier USD 600,000;
8. [MA] and LZ are hereby ordered jointly and severally to pay to Frontier its costs in this arbitration in the total amount of USD 926,038.55;
9. The compensation for the arbitrators is determined at a total amount of USD 395,124.53, whereof USD 361,525 constitute fees and USD 33,599.53 incurred costs;
10. [MA] and LZ are hereby ordered jointly and severally to pay to Frontier the amount of USD 245,124.53, corresponding to Frontier's share of the advance payments made by the Parties to cover the fees and costs of the arbitrators;
11. The Arbitral Tribunal denies all other claims for relief brought by the Parties.147
By letter dated 31 March 2005, Sládek informed Claimant that he refused to comply with Claimant's requests of 28 February 2005. He rejected Claimant's receivable for a number of reasons, including that the claim was based upon a legal relationship with MA, not LZ, and that the Final Award contravened the public policy of the Czech Republic:
In [sic] Article V para (2) letter b) of the [New York Convention] stipulates that the recognition (and enforcement) of a foreign arbitral award shall be denied if the award would contravene public policy of the country where the recognition (and enforcement) is supposed to be executed. In terms of the subject arbitral award, I must state that it indeed contradicts the public policy of the Czech Republic. I see this contradiction in an apparent incompatibility with the Czech mandatory legal regulations, in particular Act No. 328/1991 Coll., on bankruptcy and composition. Since bankruptcy proceedings mean serious intervention in the legal status of a broad spectrum of subjects, they are regulated by a [sic] strictly mandatory legislation which must be unconditionally observed. [...] Since the Arbitral Award fails to respect mandatory legislation regulating bankruptcy proceedings and fundamental legal principles, it is unacceptable in the Czech legal system. Therefore I cannot consider it in the bankruptcy proceedings. (emphasis added)153
On 7 April 2005, Mgr. Vladan Vala ("Vala"), legal advisor to Hajtmar, filed an action on behalf of Hajtmar requesting that the Regional Court annul the Final Award in its entirety on the basis of Section 31(a), (b) and (f) of the Arbitration Act,154 alleging that it ordered Hajtmar to "effect performance that is impossible or impermissible according to domestic law", and explaining that "in bankruptcy proceedings the bankruptcy trustee cannot be ordered to secure a right for one of the creditors which would establish a more beneficial position of this creditor as compared to the other bankruptcy creditors [and that] [s]uch decision is in strict violation of the basic principles of the [Bankruptcy Act]." Vala also noted that "once the bankruptcy order was adjudicated, the arbitral proceedings should have been suspended", with reference to Section 14(1)(c) of the Bankruptcy Act.155
The Creditors Committee of [MA] discussed the Final Arbitral Award issued by the Arbitral Tribunal on December 30, 2004. The Creditors Committee concluded that this Final Award orders the bankruptcy trustee to effect performance that is impermissible according to domestic law. Moreover, in our opinion the arbitration proceeding should have been discontinued once the bankruptcy adjudication order was issued, since the Claimant's alleged rights should have been claimed in bankruptcy proceedings. Due to the above, the Creditors Committee enjoined the bankruptcy trustee to file an action requesting cancellation of the arbitral award. This action was filed today. Since we request that the arbitral award be cancelled in all its points, we are not willing at this time to reimburse the costs of the arbitration to your client. (emphasis added)156
On 1 June 2005, a meeting was held between Hanzlikova, Boháček, Sládek, Hajtmar, and Vala, at the Regional Court. A legal opinion dated 25 May 2005 prepared by Vala ("Vala Opinion") was discussed at this meeting. The Vala Opinion expressed various views as to why the Final Award and Claimant's claim for a first secured charge over the LET Assets should be rejected.162 The Vala Opinion reads, in part:
According to the above-quoted Article V [New York Convention], a Bankruptcy Trustee is entitled to raise his objections in a proceeding against an application petition for recognition and enforcement of an award. However, since the Creditor never initiated any such proceeding (which is incomprehensible to the Bankruptcy Trustee, if the Creditor believes that in the case of this Arbitral Award there are no reasons why recognition and enforcement should be denied), then the Bankruptcy Trustee clearly does not understand why, over a period of more than 4 months, the Creditor was unable to file an application for recognition and enforcement of the subject foreign Arbitral Award.
[…] According to the Bankruptcy Trustee, the bankruptcy adjudication has discontinued the arbitral proceeding. […] [T]he arbitral proceeding could not continue and that the receivables would have had to be claimed in bankruptcy proceedings.
The Creditor did claim cash receivables, but unfortunately, he failed to claim the secured charges pertaining to these receivables.
However, the Creditor did claim this right in the arbitration proceeding, prior to claiming the receivables in this bankruptcy. This means that it knew to claim the secured charges, which generally afford the right to separate satisfaction.
The fact that the Arbitral Award ordered the Bankruptcy Trustee to grant first secured charges to the Creditor is contrary to the respective provisions of the Bankruptcy and Composition Act. It fails to respect the equality of bankruptcy creditors to the extent that after the bankruptcy adjudication, the Bankruptcy Trustee is not entitled to perform acts aimed at securing receivables that arose prior to the bankruptcy adjudication (i.e. receivables that must be claimed). In this sense, the Arbitral Award is contrary to the public policy of this country, which constitutes another reason why the recognition and enforcement of the Arbitral Award must be rejected.
Until a decision is made with regard to the complaint requesting nullification of the Arbitral Award or until the Creditor files an application requesting recognition and enforcement of the subject Arbitral Award and the respective decision is made, the Creditor is not entitled to any secured charges against assets listed in the bankruptcy estate.163
The Bankruptcy Trustee of [MA] filed a complaint with this court requesting nullification of the [Final Award].
All parties present agree that the [Final Award] cannot be respected in view of the provisions of § 39, letter b) and § 31, letter f) of Act No. 216/1994 Coll. on bankruptcy proceedings and the enforcement of arbitral awards, because it adjudicates the party to perform acts that are impossible or illegal under domestic law and because, according to Article V.2.B) and Decree No. 74/1959 Coll. on the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, the recognition or enforcement of the Award would contradict the public policy of the Czech Republic.
This means that in the course of the bankruptcy proceeding, the right to separate satisfaction from the Bankrupt's assets cannot be established for a creditor and therefore the Bankruptcy Trustee can neither conclude a contract of pledge to the benefit of the creditor nor provide any other security for his receivable. Such approach would be in gross violation of the Bankruptcy and Composition Act. Apart from separate satisfaction based on a promissory note (see above), the creditor did not claim any right to separate satisfaction in either of the bankruptcy proceedings; therefore, such claim could not have been reviewed in the review hearing and this creditor is not a separate creditor.164
Yesterday there was a meeting at the court of Brno dealing with the issue of allowing the sale of assets of MA/LZ in conjunction with the application for injunction from the Frontier Company.
On this meeting was presented a legal opinion from MA side, the analysis of present situation regarding to [Final Award] (and so the answer to the courts prompt). From the analysis and the discussion is clear that requested injunction against the assets has no ground. And will be refused by both judges.
The sale of LZ was approved by the judge and sale of assets held by MA will be approved also. Also MA facility in Otrokovice could be prepared for sale as planned.
Also in discussion was a fact that steps taken by FPS, while taken to protect their interest are not compatible with interest of remaining creditors. (If FPS would be successful the rest of the creditors would get nothing).
And so it is question for creditors of MA and specifically members of Creditors Committee [sic]["CC"] if it is correct that FPS is a member of CC. The question of removal FPS would be presented on the next meeting of CC and it is preferable that members would create their opinion about this. Present situation is as follows; I am expecting delivery of the inventory list from Leges specifically the assets Leges included first (as per signed contract), based on that I will correct the inventory of MA so all possible duplicity would be eliminated. This step has no influence on ongoing process, on dividing of the proceedings from the sale and which trustee would be selling what.165
[...] an Award ordering the bankruptcy trustee to grant secured charges against the bankrupt's assets to the benefit of a creditor, cannot be enforced because such act would contradict to the Bankruptcy and Composition Act and as such it would be generally illegal and in breach of the country's public order.166
Issues relating to the sale were discussed at a joint meeting held June 1, 2005 between the judges of departments 26 K and 44 K and both bankruptcy trustees in connection with the claim filed by creditor Frontier Petroleum Services Ltd., Canada, based on an arbitral award issued on December 30, 2004 by an arbitral tribunal in Stockholm. The court concluded that this claim did not hinder the sale as part of the joint tender.175
The BIT provides, in relevant part:
For the purpose of this Agreement:
(a) the term "investment" means any kind of asset held or invested either directly, or indirectly through an investor of a third State, by an investor of one Contracting Party in the territory of the other Contracting Party in accordance with the latter’s laws and, in particular, though not exclusively, includes:
(i) "movable and immovable property and any related property rights, such as mortgages, liens or pledges";
(ii) "shares, stock [...] or any other form of participation in a company, business enterprise or joint venture";
(iii) "claims to money, and claims to performance under contract having a financial value";
(iv) "intellectual property rights, including rights to […] patents, trademarks as well as trade names, industrial designs, good will, trade secrets and know-how"; and
(v) "rights, conferred by law or under contract, to undertake economic and commercial activity".
Any change in the form of an investment does not affect its character as an investment.
(b) the term "investor" means:
(i) any natural person possessing the citizenship of or permanently residing in a Contracting Party in accordance with its laws; or
(ii) any corporation, partnership, trust, joint venture, organization, association or enterprise incorporated or duly constituted in accordance with applicable laws of that Contracting Party,
provided that such investor has the right, in accordance with the laws of the Contracting Party, to invest in the territory of the other Contracting Party.
(c) the term "returns" means all amounts yielded by an investment and in particular, though not exclusively, includes profits, interest, capital gains, dividends, royalties, fees or other current income;
(d) the term "territory" means:
(i) in respect of Canada, the territory of Canada, as well as those maritime areas, including the seabed and subsoil adjacent to the outer limit of the territorial sea, over which Canada exercises, in accordance with international law, sovereign rights for the purpose of exploration and exploitation of the natural resources of such areas;
(ii) in respect of the Czech and Slovak Federal Republic, the territory of the Czech and Slovak Federal Republic.
Promotion of Investment
(1) Each Contracting Party shall encourage the creation of favourable conditions for investors of the other Contracting Party to make investments in its territory.
(2) Subject to its laws and regulations, each Contracting Party shall admit investments of investors of the other Contracting Party.
(3) This agreement shall not preclude either Contracting Party from prescribing laws and regulations in connection with the establishment of a new business enterprise or the acquisition or sale of a business enterprise in its territory, provided that such laws and regulations are applied equally to all foreign investors. Decisions taken in conformity with such laws and regulations shall not be subject to the provisions of Articles IX or XI of this Agreement.
Protection of Investment
(1) Investments or returns of investors of either Contracting Party shall at all times be accorded fair and equitable treatment in accordance with principles of international law and shall enjoy full protection and security in the territory of the other Contracting Party.
(2) Each Contracting Party shall grant to investments or returns of investors of the other Contracting Party in its own territory, treatment no less favourable than that which it grants to investments or returns of investors of any third State.
(3) Each Contracting Party shall grant investors of the other Contracting Party, as regards their management, use, enjoyment or disposal of their investments or returns in its territory, treatment no less favourable than that which it grants to investors of any third State.
(4) Each Contracting Party shall, to the extent possible and in accordance with its laws and regulations, grant to investments or returns of investors of the other Contracting Party a treatment no less favourable than that which it grants to investments or returns of its own investors.
The provisions of this Agreement shall not be construed so as to oblige one Contracting Party to extend to the investors of the other Contracting Party the benefits of any treatment, preference or privilege resulting from:
(a) any existing or future agreement establishing a free trade area or customs union;
(b) any multilateral agreement for mutual economic assistance, integration or cooperation to which either of the Contracting Parties is or may become a party;
(c) any bilateral convention, including any customs agreement, in force on the date of entry into force of this Agreement which contains provisions similar to those contained in paragraph (b) above; or
(d) any existing or future convention relating to taxation. […]
Settlement of Disputes Between an Investor and the Host Contracting Party
(1) Any dispute between one Contracting Party and an investor of the other Contracting Party relating to the effects of a measure taken by the former Contracting Party on the management, use, enjoyment or disposal of an investment made by the investor, and in particular, but not exclusively, relating to expropriation referred to in Article VI of this Agreement or to the transfer of funds referred to in Article VII of this Agreement, shall, to the extent possible, be settled amicably between them.
(2) If the dispute has not been settled amicably within a period of six months from the date on which the dispute was initiated, it may be submitted by the investor to arbitration.
(3) In that case, the dispute shall then be settled in conformity with the Arbitration Rules of the United Nations Commission on International Trade Law, as then in force.
This Agreement shall apply to any investment made by an investor of one Contracting Party in the territory of the other Contracting Party on or after January 1st, 1955.
(1) Damages of approximately USD 20,000,000205 as compensation for the losses arising out of Respondent's conduct which it alleges is inconsistent with its obligations contained within Articles II and/or III of the Treaty;
(2) Costs associated with these proceedings, including all professional fees and disbursements;
(3) Costs associated with the arbitral proceedings referred to herein and the Investor's attempts to enforce the orders and awards issued by the previous international arbitral tribunal in its favour before the Courts of the Czech Republic;
(4) Pre-award and post-award interest at a rate to be fixed by the Tribunal;
(5) Payment of a sum of compensation equal to any tax consequences of the award, in order to maintain the award's integrity; and
(6) Such further relief as counsel may advise and that this Tribunal may deem appropriate.
(1) A declaration that it does not have jurisdiction over any claim based upon Article II of the BIT;
(2) A declaration that Claimant's claims are dismissed;
(3) A declaration that the Czech Republic has not violated the BIT with respect to Frontier's investment howsoever defined; and,
(4) An order that Frontier shall be liable for all costs of this proceeding, including the Czech Republic's legal costs and expert fees, on a full indemnity basis.
Even if Respondent had not already explicitly admitted jurisdiction, Claimant asserts that it would nonetheless be estopped from pursuing any of its jurisdictional objections because it has waived any such right under applicable rules of international law by not bringing its objections in a timely manner.208
Although Article 21(3), taken alone, appears to place a mandatory time limit on raising objections to jurisdiction, the drafters clearly felt a tribunal in its discretion over procedure [Article 15(1)] or by allowing amendments [Article 20] might permit such pleas to be raised at a later date.216
(i) With respect to Claimant's alleged entitlements (a) "to a first secured charge over the assets of LZ as security for its loan"; (b) "to acquire 49% of the shares of LZ for nominal consideration"; and (c) "as a shareholder of LZ, to participate in the business of the joint venture" these were asserted by Frontier under the USA and were the subject of the private dispute between Claimant and LZ and MA over which the Stockholm Tribunal had exclusive jurisdiction. Respondent submits that there is no allegation in this arbitration that Respondent interfered in Claimant's enforcement of those aspects of the Final Award against MA and LZ.233 Nor is there any allegation that the Czech Republic interfered with Claimant's attempt to register a security interest during the Stockholm Arbitration;234 and,
(ii) Concerning Claimant's claim to (a) money in the form of the Final Award; and (b) the "aircraft type certificates to be acquired by Frontier through the joint venture", Respondent submits that they are not the subject of any claim in these proceedings. The claim to money in the Final Award has been recognised in the insolvency proceedings related to MA and LZ, and the right to "aircraft type certificates" has never been mentioned before in the context of any of Claimant's claims.235
[t]o be clear about the jurisdictional objections, it would be possible to formulate claims based upon what happened, the money that was spent in the Czech Republic, to be within this Tribunal's jurisdiction. Our jurisdictional objections have been designed to put the Claimant to the discipline which it is obliged to be put to, to plead its claims based upon the provision which gives this Tribunal jurisdiction. It hasn't done so, and it hasn't done so because of the way it would expose itself, as I had mentioned in the opening submissions, to very obvious flaws in its causation arguments in particular, but also in respect of other aspects of the Treaty which is relied upon; in other words, the other obligations it's relying upon.238
(i) the payments made to MA and Davidová between 18 April 2001 and 14 August 2001 constitute an "asset held or invested" in the Czech aviation industry in the Czech Republic;239
(ii) the pledge in the USA whereby Claimant advanced the funds necessary to acquire the LET Assets in exchange for a first secured charge constitutes an interest in "moveable and immoveable property and any related property rights, such as mortgages, liens or pledges";
(iii) the agreement in the USA that after all of the LET Assets are transferred to LZ, Claimant was to acquire 49% of the shares of LZ for nominal consideration constitutes "shares, stock, bonds and debentures or any other form of participation in a company, business enterprise or joint venture";
(iv) Claimant's claim to money in the form of the Final Award against both MA and LZ constitutes "claims to money, and claims to performance under a contract having a financial value";
(v) the contract for the acquisition of the aircraft type certificates constitutes "intellectual property rights, including rights with respect to copyrights, patents, trademarks as well as trade names, industrial designs, good will, trade secrets and know-how"; and,
(vi) the agreement that both Claimant and MA as shareholders of LZ shall participate in the business of LZ constitutes "rights, conferred by law or under contract, to undertake any economic and commercial activity".240
In Eureko v . Poland,251 the tribunal ruled that the term "measure" in a BIT provision similar to the one before this Tribunal252 encompassed both actions and omissions by the respondent state. The tribunal stated that "[i]t is obvious that the rights of an investor can be violated as such by the failure of a Contracting State to act as by its actions", referring to similar findings by numerous other international arbitral tribunals.253 Claimant also asserts that the award in Saipem v. Bangladesh demonstrates how the failure of a state to ensure that an international arbitration award is recognised and enforced may be characterised as a "measure" subject to that state's obligations under a BIT.254
Claimant asserts that Article II(1) of the BIT imposes a positive obligation upon the Czech Republic with respect to the establishment of favourable conditions for Canadian investors to make investments in its territory, and, together with Article III(1), should be construed as imposing an ongoing obligation upon the Czech Republic to ensure that it has taken the necessary steps to create and maintain favourable investment conditions.261 It is Claimant's position that this "obligation subsists on the part of the Host State, post-establishment, because the investor relied upon the continuing promise of the Host State to maintain favourable conditions when making the decision to establish its investment.262
The two standards [referring to full protection and security and fair and equitable treatment] are far from being mutually exclusive; indeed, they can often overlap considerably. Similarly, as indicated by Claimant in its Memorial, the protection contained within Article II:1 of the Treaty need not serve as a basis for establishing an independent breach (especially not in the circumstances of the instant case). While the Claimant disagrees that this provision can never be enforced against a Treaty party, in this case the primary function of the provision is essentially to reinforce the scope and content of the fair and equitable treatment standard.266
8.1.4 Articles III(2) and (3) of the BIT and Article VI(1) of the U.S./Czech Republic BIT - Operation of Most-Favoured Nation Provision
Claimant submits that, should the Tribunal conclude that it lacks jurisdiction on the basis of any of Respondent's objections, it should find that Claimant is entitled to benefit from the broader terminology found in the dispute settlement provision of Article VI(1) of the Treaty Between the Czech Republic and the United States of America for the Reciprocal Encouragement and Protection of Investment ("US-Czech Republic BIT") by operation of the most-favoured nation ("MFN") provision at Article III(2) and (3) of the BIT, as limited by Article IV.274 Article VI of the US-Czech Republic BIT provides, in part:
1. For purposes of this Article, an investment dispute is a dispute between a Party and a national or company of the other Party arising out of or relating to (a) an investment agreement between that Party and such national or company; (b) an investment authorization granted by that Party's foreign investment authority to such national or company; or (c) an alleged breach of any right conferred or created by this Treaty with respect to an investment.
Respondent argues that its offer of consent to arbitration is contained in Article IX of the BIT and the arbitration agreement between Respondent and Claimant was perfected upon Claimant's filing of its Notice of Arbitration on 3 December 2007. Respondent asserts that Claimant cannot seek to modify the terms of the arbitration agreement unilaterally by recourse to the MFN clause of the BIT.275
Claimant submits that the obligation of full protection and security requires a host state to maintain a regulatory and commercial framework that ensures full protection and security for foreign investments at all cost. Claimant asserts that prima facie evidence of a host state's failure to provide full protection and security is manifested in the fact of insufficient government action, combined with contemporaneous loss or damage to the investor's ability to manage, use, enjoy, or dispose of its investment.280
Claimant rejects Respondent's argument that it is only obliged to provide police protection on the ground that according to the BIT, Respondent is obliged to provide "full protection and security" in accordance with principles of international law which is in no way restricted to customary international law. Claimant notes that there is authority for its position that full protection and security extends beyond protection from physical violence.281 According to Claimant, the host state's obligation is one of due diligence, requiring its constant vigilance in ensuring that the regulatory and commercial legal protections it has put in place function efficiently and effectively.282 Failure to establish or maintain such reasonable measures of protection can be justified on rare occasions, but only on the basis of a pressing and reasonable public policy objective.283 While this duty should not be extended to become a de facto "all risks" insurance policy for investors, Claimant also argues that it should not be confined to situations involving "a violent mob or insurrection".284
Claimant asserts that pursuant to this obligation under the BIT, Respondent should have ensured that its legal and political institutions operated as well as they had been advertised as operating. As such, Respondent was obliged to maintain (i) a working registry system; (ii) courts capable of providing urgent relief to a defrauded shareholder; (iii) police inspectors prepared to fully and finally investigate allegations of commercial fraud, even when made by a foreigner against a local businessman; and (iv) bankruptcy judges who do not prejudge issues while partaking in ex parte communications with parties adverse in interest to the primary (foreign) creditor".285 Claimant relies upon Lauder v. Czech Republic for the proposition that the obligation to accord full protection and security to an investment extends to the host state's ability to furnish the investor with an effective and efficient judicial system thereby enabling the investor to obtain a timely and proficient adjudication of its rights, in keeping with international standards.286
Respondent rejects Claimant's assertion that the host state's obligation is one of due diligence, requiring its constant vigilance to ensure that the regulatory framework and commercial legal protections it has put in place for the benefit of a foreign investor function efficiently and effectively, noting that no tribunal has ever adopted this interpretation.287 Respondent also objects to the assertion that it is under an obligation to ensure that a regulatory and commercial framework to ensure full protection and security for foreign investments is maintained at all cost, noting the subjectivity of the level of protection and security that might be expected by a particular investor.288
Respondent explains that the vast majority of investment treaty awards have limited the obligation of full protection and security to ensuring the physical safety of the investment property and personnel in the host state consistent with the resources available to the host state, which Respondent notes is in line with the historical development of the standard in customary international law.289 Respondent asserts that it is only in this context that it is correct to characterise the obligation as one of due diligence.290 While it is clear that this obligation extends to third parties (in so far as states have an obligation of due diligence to protect property and personnel from the violent acts of mobs or armed militias), Respondent contends that it cannot properly be said to extend to "other non violent acts by third parties, such as commercial acts of the private business partners of the foreign investor."291
Respondent contends that even if on the basis of Lauder, "full protection and security" could be extended to the host state's judicial system to allow assessment of its effectiveness by reference to international standards, the decisions of the Czech Supreme Court and Constitutional Court not to enforce the Order on Security in the Final Award is consistent with the major legal systems of the world and with the Council of Ministers of the European Union regulation on insolvency proceedings ("EC Regulation").292
Most bilateral or multilateral treaties dealing with the protection of investments contain clauses with the same or similar wording as the full protection and security clause in Article III(1) of the BIT.293 Some omit the adjective "full", others put "security" before "protection" and some refer to "most constant protection and security", but these variations do not appear to carry any substantive significance.294
It is not disputed that the standard of full protection and security relates to the investor's physical safety, nor is it particularly relevant to the circumstances of this case.296 In a number of cases tribunals have suggested that the standard of full protection and security applies exclusively or preponderantly to physical security and to the host state's duty to protect the investor against violence directed at persons and property stemming from state organs or private parties.297 For example, in Saluka, the Tribunal said:
The "full protection and security" standard applies essentially when the foreign investment has been affected by civil strife and physical violence. […] [T]he "full security and protection" clause is not meant to cover just any kind of impairment of an investor's investment, but to protect more specifically the physical integrity of an investment against interference by use of force.298
The host State is obligated to ensure that neither by amendment of its laws nor by actions of its administrative bodies is the agreed and approved security and protection of the foreign investor's investment withdrawn or devalued.303
Similarly, in Lauder304 the tribunal found that:
The investment treaty created no duty of due diligence on the part of the Czech Republic to intervene in the dispute between the two companies over the nature of their legal relationships. The Respondent's only duty under the Treaty was to keep its judicial system available for the Claimant and any entities he controls to bring their claims[.]305
In Siemens306 the tribunal derived additional authority for the proposition that "full protection and security" extends beyond physical security from the fact that the applicable BIT's definition of investment applied also to intangible assets:
As a general matter and based on the definition of investment, which includes tangible and intangible assets, the Tribunal considers that the obligation to provide full protection and security is wider than "physical" protection and security. It is difficult to understand how the physical security of an intangible asset would be achieved.307
The reference [...] to the provision of "constant protection and security" cannot be construed as the giving of a warranty that property shall never in any circumstances be occupied or disturbed.309
[T]he standard provides a general obligation for the host State to exercise due diligence in the protection of foreign investment as opposed to creating "strict liability" which would render a host State liable for any destruction of the investment even if caused by persons whose acts could not be attributed to the State.311
The Respondent's duty under the Treaty was, first, to keep its judicial system available for the Claimant to bring its contractual claims and, second, that the claims would be properly examined in accordance with domestic and international law by an impartial and fair court. There is no evidence - not even an allegation - that the Respondent has violated this obligation.
The Claimant had the opportunity to raise the violation of the Agreement and to ask for reparation before the Lithuanian Courts. The Claimant failed to show that it was prevented to do so. As a result, the Arbitral Tribunal considers that the Respondent did not violate its obligation of protection and security under Article III of the BIT.313
Claimant asserts that from the fair and equitable treatment standard flows a duty of fidelity to the principle of good faith, which requires a state to ensure that its officials are exercising their authority in a reasonable and fair-minded manner that is neither arbitrary nor unjust.316 Claimant asserts that there is consensus about the entitlement of a foreign investor to hold a legitimate expectation that the state, in promoting investment, is prepared to take reasonable steps to ensure that its officials exercise any discretion delegated to them in good faith and in a reasonable and fair-minded manner. Claimant disagrees with Respondent's position that it is unreasonable for an investor to form legitimate expectations based solely on the promises made by a state by way of international agreement and that such expectations may only be made upon specific assurances provided by state officials.317
Claimant rejects Respondent's position that the reference to "principles of international law" in Article III(1) refers only to customary international law. Claimant submits that the sensible approach is to accord these words their plain and ordinary meaning in context, and in light of the liberalising object and purpose of the BIT. Thus, Claimant concludes that international arbitral law and practice, and the general principle of good faith, should be considered.321 However, regardless of whether fair and equitable treatment is owed as a matter of customary international law, or as part of an autonomous treaty standard, Claimant argues that fair dealing, reasonableness, and fidelity are always "part and parcel" of the good faith exercise of public authority owed by all states to foreign investors under the fair and equitable treatment standard.322
Respondent posits that while Claimant has set out what it considers to be the content of Articles II(1) and III(1),323 it has not explained how specific acts attributable to the Czech Republic have breached those Articles and caused an injury to Claimant's investment.324 While Respondent acknowledges that the standards of the BIT can operate to protect legitimate expectations founded upon the host state's contractual commitments to the investor, or other forms of binding promises recognised by the host state's administrative law, those standards cannot be invoked as the source of the legitimate expectations. Respondent argues that Claimant disregards the high threshold for a finding of liability on the basis of the obligation to accord fair and equitable treatment and pleads its claim on the basis that any acts of state not meeting its own approval must be condemned as violations of international law.325
Respondent refers to the guidance provided in Continental as to the form of the state's conduct that may generate a reasonable legitimate expectation as applied within the fair and equitable treatment standard, which Respondent notes is consistent with comparative jurisprudence on legitimate expectations in national and supranational legal systems:
[I]n order to evaluate the relevance of [the concept of reasonable legitimate expectations] applied within Fair and Equitable Treatment standard and whether a breach has occurred, relevant factors include:
i) the specificity of the undertaking allegedly relied upon [...] which is mostly absent here, considering moreover that political statements have the least legal value, regrettably but notoriously so;
ii) general legislative statements engender reduced expectations, especially with competent major international investors in a context where the political risk is high. Their enactment is by nature subject to subsequent modification, and possibly to withdrawal and cancellation, within the limits of respect of fundamental human rights and jus cogens;
iii) unilateral modification of contractual undertakings by governments, notably when issued in conformity with a legislative framework and aimed at obtaining financial resources from investors deserve clearly more scrutiny, in the light of the context, reasons, effects, since they generate as a rule legal rights and therefore expectations of compliance[.]326
There are numerous examples of the protection of legitimate expectations in investment cases. For example, in Metalclad v. Mexico333 the investor was assured that it had all the construction and operating permits it needed for its landfill project, but the municipality refused to grant a construction permit. The Tribunal held that the investor was entitled to rely on the representations of the federal officials and that the acts of the state and the municipality were in violation of fair and equitable treatment under Article 1105 of NAFTA.334
in Toto,352 the claimant sought to base its claim for violation of the fair and equitable treatment standard on the slow progress of proceedings before the respondent's Conscil d'Etat since the proceedings had not progressed over six years.353 After examining the practice under the International Covenant on Civil and Political Rights ("ICCPR"), the tribunal identified several factors that needed to be assessed when determining a denial of justice claim, namely the complexity of the matter, the need for celerity of decision and the diligence of claimant in prosecuting its case.354
A foreign investor protected by the Treaty may in any case properly expect that the Czech Republic implements its policies bona fide by conduct that is, as far as it affects the investors' investment, reasonably justifiable by public policies and that such conduct does not manifestly violate the requirements of consistency, transparency, even-handedness and non-discrimination.356
(1) The Regional Court in Brno inexplicably took more than three years to respond to Claimant's application to invalidate the decision that served to solidify Soska's illegal control of LZ in September 2002 and ongoing breaches of the USA;
(2) The bankruptcy judges for both MA and LZ jointly partook in a fundamentally flawed decision-making process that both deprived the Investor of any chance of rescuing LZ and the LET Assets and its right to benefit from its position as a secured creditor in both bankruptcies once the judges had permitted the liquidation to be commenced;
(3) Czech officials could have exercised their authority to remedy the treatment being received by Claimant but consistently failed to do so; and
(4) Because Respondent's legal system was manifestly inadequate for the tasks required of it under applicable international law, it failed to comply with Respondent's international obligation to maintain an effective means for the enforcement of an international tribunal's orders and award.361
In its final submission to the Tribunal, Claimant set out the following as the key questions for the Tribunal's determination:
(a) whether the lack of transparency and ineffective operation of Respondent's Commercial Registry, coupled with the deficient operation of its bankruptcy regime, fell below the standards promised in Articles ii or iii of the Treaty;
(b) whether the LZ joint venture could have been protected in a timely and effective manner if Claimant had received:
(i) access to an investment protection regime, whose operation was consistent with the promise of full protection and security; and
(ii) the assistance of the Czech state, once it offered its assurance to use its position as the largest potential creditor of Moravan to negotiate with Soska;
(c) whether the Czech bankruptcy trustees and bankruptcy judges were required to exercise their discretion under the Czech bankruptcy code and applicable law in a manner consistent with the standard of fair and equitable treatment, the principle of good faith, and otherwise in accord with the Czech state's international obligations.362
Claimant notes that Respondent is a Party to the European Convention for the Protection of Human Rights and Fundamental Freedoms ("ECHR"), Article 6(1) of which specifies that states must ensure that all persons receive fair, transparent, and expeditious access to a court. Claimant submits that this right, particularly when the nature of the dispute is urgent, also stands as an obligation required under the minimum standard of treatment under customary international law.367 Claimant argues that by operation of Articles III(3) and III(4) of the BIT, Respondent was obliged to afford it the most favourable treatment it otherwise would be obliged to provide to its own investors or to the investors of third parties; thus, Claimant argues, it is entitled to the same right to expeditious proceedings before a court in the Czech Republic as are those legal persons entitled to such treatment under the ECHR.368
Respondent also asserts that the notion that an 18-month delay in court proceedings might constitute a denial of justice in international law and rise to the level of a breach of Article iii of the BiT is "preposterous"; there would be few, if any, legal systems in the world that would satisfy this unrealistic standard. Moreover, Respondent contends that the inaction of Claimant during this period is fatal to its claim.381
Respondent submits that the conduct of Claimant over the relevant period is significant for a denial of justice claim.387 Respondent asserts that Claimant could have accelerated the proceedings before the Regional Court, it could have complained to the President of that Court and, if not satisfied, to the Ministry of Justice or to the appellate court with a request for the setting of a mandatory timetable for the case.388 Respondent maintains that although Claimant's failure to initially pay the fee did not cause substantial delays in the proceeding, it was symptomatic of Claimant's failure to prosecute its Resolutions Claim properly.389
To assess whether court delays are in breach of the requirement of a fair hearing, the ICCPR Commission takes into account the complexity of the matter, whether the Claimants availed themselves of the possibilities of accelerating the proceedings, and whether the Claimants suffered from the delay.410
Third, it is not clear how Claimant suffered from this delay. While Claimant asserts that the matter was urgent, it has not established to the Tribunal's satisfaction that earlier action on the part of the Regional Court would have made any difference to the purported effect of the Resolutions on Claimant's investment. As noted by Respondent, it is far from certain that, had the Resolutions Claim been successful at an earlier stage, (i) Soska et al would not have been able to control LZ; and (ii) Orbes (as trustee for Moravan which, according to Claimant, remained the sole shareholder of MA at the time) could have stepped in to control MA and LZ and fulfil the terms of MA's agreement with Claimant. The Tribunal finds that Claimant has failed to establish that Orbes would have taken control of MA if the Commercial Register had terminated the offices of Soska, Stefánek, and Joachimczyk when Soska submitted the WIMCO Resolutions.414
Claimant also objects to Hanzlikova's decision that "the fact that the arbitration proceeding continued after the adjudication of a bankruptcy order constitutes a reason for the denial of the Award's recognition and enforcement pursuant to [Article V(2)(a) of the New York Convention ]", asserting that this decision contravenes Claimant's rights under Article III of the BIT, Respondent's obligations under the New York Convention,424 and Article 15 of the EC Regulation, which provides:
The effects of insolvency proceedings on a lawsuit pending concerning an asset or a right of which the debtor has been divested shall be governed solely by the law of the Member State in which that lawsuit is pending.425
Claimant also refers to Hanzlikova's finding that "an Award ordering the bankruptcy trustee to grant secured charges against the bankrupt's assets to the benefit of a creditor, cannot be enforced because such an act would contradict to [sic] the Bankruptcy and Composition Act and as such it would be generally illegal and in breach of this country's public order."434 Claimant asserts that merely because a Czech law is considered to be mandatory does not render the law to the category of public policy. Public policy, Claimant argues, contemplates exceptional considerations which transcend specific state regulation, such as human rights and corruption, not the equality of bankruptcy creditors.435
Awards in the Theory and Jurisprudence of the Central and East European States and Russia, 19 Arb. int. 72 (2003) (Tab 6 of Claimant's Post-Hearing Memorial).
Claimant asserts that, as the Czech Republic is an "avowedly proud" "Model Law Country", the 2006 amendments to the UNCITRAL Model Law, which apply to preliminary and interim measures, should be used as a yardstick for measuring how Respondent could have acted fairly and equitably in the circumstances.439
Claimant explains that the trustees possessed the delegated legislative authority necessary to act as "de facto gatekeepers for Respondent's bankruptcy regime" in that they make initial decisions about whether a creditor's claim is valid on its face or should be excluded.441 Claimant argues that the fact that the erroneous decision not to include Claimant's claim was not corrected by either bankruptcy judge confirms that the trustees' decisions should be attributed to the Czech state.442
Claimant contends that it is not a controversial proposition in international law that such delegated authority may serve as the source for attribution.443 Claimant also notes that the Czech Constitutional Court has ruled that bankruptcy trustees exercise state authority in a manner akin to a public body.444
Respondent rejects Claimant's submission that the conduct of the bankruptcy trustees for MA and LZ is attributable to the Czech state and submits that it is settled Czech law that the Czech Republic is not liable for acts of the bankruptcy trustees.457 Respondent explains that under the Bankruptcy Act, the bankruptcy trustee is an independent procedural entity and, although the trustee is selected by the bankruptcy court from a list of independent private individuals or legal entities registered with the court, the trustee is not a court proxy and is not acting on its behalf.458 Once appointed by the court, the bankruptcy trustee is obliged to fulfil its obligations autonomously, with professional care and under personal liability for damage caused by its acts.459 The remuneration and expenses of the bankruptcy trustee are borne by the creditors as they are paid out from the proceeds of the sale of the bankruptcy assets.460 Respondent explains that the bankruptcy trustee does not possess the authority to decide on the existence or priority of a claim in bankruptcy.461
Respondent dismisses Claimant's reliance on the Constitutional Court's statement that a bankruptcy trustee exercises state authority in a manner akin to a public body, noting that the decision in which the statement is found did not substantively deal with the position of the bankruptcy trustee, but rather decided on the abolition of certain provisions of the Bankruptcy Act relating to the process of remunerating a bankruptcy trustee, on the basis that they violated the principle of equality.462 Respondent notes that the decisions of other Czech courts have dealt with the issue more directly and support its position.463
Under international law, Respondent submits that the acts of a bankruptcy trustee do not satisfy the test for attribution under Article 5 or Article 8 of the ILC Articles. Respondent explains that a bankruptcy trustee is not a de jure or de facto public organ for the purposes of Article 5, nor does a bankruptcy trustee act "on the instructions of, or under the direction or control of" the Czech state for the purposes of Article 8.464
Respondent notes that the issue of responsibility of a state for a bankruptcy trustee acting within a civilian legal framework similar to that of the Czech Republic has been discussed in Plama v. Bulgaria where the tribunal decided that Bulgaria was not responsible for the actions of its bankruptcy trustees.465
Based on the above, i am herewith requesting you to exercise your authority and ensure that the above Arbitral Award be recognized, namely by the bankruptcy trustee.
in [sic] Article V para (2) letter b) of the [New York] Convention stipulates that the recognition (and enforcement) of a foreign arbitral award shall be denied if the award would contravene public policy of the country where the recognition (and enforcement) is supposed to be executed. In terms of the subject arbitral award, I must state that it indeed contradicts the public policy of the Czech Republic. I see this contradiction in an apparent incompatibility with the Czech mandatory legal regulations, in particular Act No. 328/19991 Coll., on bankruptcy and composition. Since bankruptcy proceedings mean serious intervention in the legal status of a broad spectrum of subjects, they are regulated by a strictly mandatory legislation which must be unconditionally observed. […] Since the Arbitral Award fails to respect mandatory legislation regulating bankruptcy proceedings and fundamental legal principles, it is unacceptable in the Czech legal system. Therefore I cannot consider it in the bankruptcy proceedings.
Such approval has not been issued yet and in the future decisionmaking about the approval the court will take into consideration all of the above mentioned facts and will carefully consider further action in a way that the rights of either participant won't be violated.480
The appellate court agrees with the bankruptcy creditor's objection that the first instance court has not addressed the grounds for seeking an interim injunction. in the petition for an interim injunction, the Petitioner stated circumstances based on which he concluded that the execution of rights pursuant to the final award of December 30, 2004 had been frustrated. He explicitly stated that the enforcement of this award had been jeopardized [...]
All parties present agree that the subject Arbitral Award cannot be respected in view of the provisions of §39, letter b) and §31, letter f) of Act No. 216/1994 Coll. on bankruptcy proceedings and the enforcement of arbitral awards, because it adjudicates the party to perform acts that are impossible or illegal under domestic law and because, according to Article V.2B) and Decree No. 74/1959 Coll. on the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, the recognition or enforcement of the Award would contradict the public policy of the Czech Republic.
This means that in the course of the bankruptcy proceeding, the right to separate satisfaction from the Bankrupt's assets cannot be established for a creditor and therefore the Bankruptcy Trustee can neither conclude a contract of pledge to the benefit of the creditor nor provide any other security for his receivable. Such approach would be in gross violation of the Bankruptcy and Composition Act. Apart from separate satisfaction based on a promissory note […], the creditor did not claim any right to separate satisfaction in either of the bankruptcy proceedings; therefore, such claim could not have been reviewed in the review hearing and this creditor is not a separate creditor. […]
Both Judges agree that the standing of creditor Frontier and claims raised by this creditor do not constitute an obstacle to the prepared sale.
Mgr. Vala submits to the court a written statement regarding the creditor's motion to proceed pursuant to §12 of the Bankruptcy and Composition Act [the cancellation of the tender].